IKEA to enter South America after deal with Falabella

Stockholm: IKEA, the world’s biggest furniture retailer, plans to open its first stores in South America after signing a franchise agreement with Chilean retailer Falabella, the companies said.

The Swedish firm aims to open at least nine stores in Chile, Colombia and Peru over a period of 10 years and will sell through online sales channels in the three countries, it said late on Thursday.

The move will support IKEA’s target to boost the number of customers to 3.2 billion in 2025 from around 1.2 billion today, in stores and online. It has said it aims to expand both in existing and new markets.

Inter IKEA Group Chief Executive Torbjorn Loof said South America is one of IKEA’s future important growth markets. He added Chile, Peru and Colombia, with a combined population of almost 100 million people, had a market potential for home furniture of more than €8 billion (Dh34.6 billion).

Loof said that while Falabella will invest $600 million, entering South America will not come with any “physical investments” for IKEA, which will contribute mainly with staff, support and know-how.

“We will bring to the three countries the full experience of IKEA, with stores and online sales such as those already existing in Europe, the United States and Asia,” Sandro Solari, CEO of Falabella, said in a statement.

“IKEA will complement the current offer of products and services of our home improvement subsidiary Sodimac.” The first store is expected to open in the city of Santiago at the end of 2020, with Lima and Bogota to follow, but the company is looking at several markets in South America, Loof said, declining to give any sales targets.

“Giving an exact figure is always hard. These are new countries and new markets,” he said.

IKEA Group, whose founder Ingvar Kamprad died in January at the age of 91, last year grew retail sales by 4 per cent to €34.1 billion ($40.3 billion).

It operates through a franchise system. Inter IKEA is the brand owner and franchiser and IKEA Group is the biggest franchise owner with 363 stores in 29 markets, out of a total of 418 stores in 49 markets.

New challenges

IKEA is having to adapt to fast changing shopping habits and competition. German online furniture retailer Home24, one of the new challengers to IKEA, announced a stock market listing on Friday and is active in Brazil, as yet untapped by its much bigger rival.

IKEA is seeing the surge in e-commerce and home delivery dim the appeal of its classic out-of-town warehouse stores, and said last year it would run tests in 2018 of selling its goods through third parties.

Loof said negotiations with third parties were ongoing, and he expects to bring more clarity on when selling through third parties might start later this year.

“If everything goes as planned it could be this year. But it could also take until next year. But we are optimistic and working hard.” Such a move would mean IKEA’s customers may soon be able to buy its flat-pack furniture and other home furnishings through the likes of Amazon, which has said it plans to venture into furniture, or Chinese rival Alibaba.

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